Tough going for rivals plugging into local loop

By PETER GRIFFIN telecoms writer

The Commerce Commission has won approval for its recommendation to open up Telecom's copper-line network to competitors, but industry commentators predict anything but a smooth ride for rivals looking to plug into Telecom's local loop.

It will be 2005 at the earliest before unbundling has any tangible benefits for Telecom's rivals and even then they will have to cherrypick customers from Telecom in numbers if they are to justify the cost of equipping Telecom's telephone exchanges with their own hardware.

Nevertheless, the commission estimates the benefits of unbundling the local loop will equate to $204 million over a five-year period as consumers take advantage of lower prices for fast internet products.

Sydney-based telecoms analyst Paul Budde said the draft decision finally had New Zealand catching up with its international peers. But unbundling was no panacea to New Zealand's "broadband problem" - less than 2 per cent uptake of fast internet.

"With unbundling you need a cluster of customers in an exchange to make it work, you literally build your business case on an exchange-by-exchange basis."

TelstraClear was in the best position to do this, but high-level Government action was needed to build momentum in the market for fast internet services overall.

"Eighteen months ago the United Kingdom had 3 per cent broadband penetration, now it has 23 per cent penetration. The only reason why is that [Prime Minister] Tony Blair got angry and shamed British Telecom into changing," said Budde.

For ihug managing director Martin Wylie, unbundling brings the prospect of its entering the local calling market and bundling lower-priced DSL (digital subscriber line) services with toll calls.

Ihug was sold for $81 million this week. Its new owner, Perth-based internet provider iiNet, had become the number two DSL player in Australia after Telstra's local loop was opened up.

"IiNet are in the business of putting their [equipment] into Telstra's exchanges right now," said Wylie, a former Telecom executive.

"The position they've reached in DSL is almost entirely down to unbundling."

Analyst reports are beginning to trickle out in the wake of the draft determination that look at the potential impact unbundling will have on Telecom's bottom line.

Dutch investment bank ABN Amro said opening the public data network would lower wholesale data prices for competitors and therefore reduce Telecom's revenue from this source, which accounted for a modest $39 million in the three months to June 30.

The financial impact on Telecom's revenue from copper-line fast internet products would be minimal and unbundling would not affect Telecom's widely expected move to increase its dividend payout, it added.

While preparations for unbundling will give Telecom time to lower its broadband pricing ahead of competition hitting the local loop, commentators thought it unlikely Telecom would budge until completely necessary.